A blog devoted to Reno's economic recovery

You know those tools at the bottom of your toolbox that you have to fish around for?

Maybe a stud finder or a clamp?

You may not use them often but when you need them, they’re indispensable. That’s kind of the role of the foreign trade zone in Northern Nevada.

Many residents likely don’t even know we have one. Still, it’s a small but important part of the economy and helps attract businesses.

Another reason why it might be worth knowing about is that as Reno positions itself as a player on the West Coast, national and global shipping scenes, its foreign trade zone will be essential.

It’s already about as good as it can be in how it’s set up — more on that soon — but the main improvement needed is simply letting more businesses know about it.

What it is

A foreign trade zone allows what businesses are inside it to act as if goods they’ve imported did not come — at least not yet — into the United States. Normally U.S. Customs would instantly slap duty fees and taxes on it.

“The foreign trade zone is not part of the U.S. market or territory from a legal standpoint,” said Russ Romine, vice president of Global Transportation at Legacy Supply Chain Services in Reno. In addition to handling shipping for other companies, the firm is the administrator for the foreign trade zone here.

The example Romine likes to use is cars.

Say you import an engine. If you’re not in a foreign trade zone, you may pay 5 percent of the value in duty fees and taxes. And if you import a transmission, you’d pay a 5 percent duty and tax on it, too.

If you were in a foreign trade zone and you sold the assembled vehicle in the U.S. market, you might pay only 2 percent.

“It’s called an inverted tariff,” Romine said. “Where you were paying 5 and 5, now you’re paying 2 percent.”

And if you export it right back overseas instead of selling the final product in the United States, you might pay nothing in duties and taxes because it’s as if the materials never touched American soil — this might happen if you import products from China and then sell them to Europe.

In other words, a foreign trade zone can help a business defer, reduce or eliminate customs fees on imported materials.

But wait, there’s more:

* Your stuff can clear port quicker because it doesn’t go through customs. (Because of this, your business will get a little more scrutiny from U.S. Customs to make sure you’re not importing stuff you shouldn’t.)

* You can import materials and not pay any fees until you’re willing to sell a final product, which frees up cash in the here and now.

* And let’s say some of the stuff you import gets tossed away either as waste after you process it or from damage during shipping. If you’re in the foreign trade zone, you don’t pay fees on it because it’s like the waste never entered the country.

Why ours is better

Reno’s foreign trade zone is notable because it’s among the biggest in the United States, with around 7,500 acres covered. Basically, any place that’s zoned industrial and within 60 miles of Reno but still in Nevada — in Carson City, to the edge of Fallon, south of Gardnerville and north past Pyramid Lake — is eligible.

Steve Hill — director of the Nevada Governor’s Office of Economic Development — said about the foreign trade zones in Reno and Las Vegas, “We don’t think they’re as utilized as they could be. It’s one of the things where we’re trying to get word out to companies looking to expand to Nevada and to the companies already here.

“We’re not sure they understand the flexibility we have in foreign trade zones here in Nevada. You often think of them as a specific piece of geography. In Nevada, we have the opportunity that if a business is located in a specific place, we can draw a line around their company. They don’t have to move. They can qualify their location as (a foreign trade zone).”

This flexibility where the foreign trade zone comes to your business instead of you coming to it is called an “alternative site framework.”

Brian Kulpin of Reno-Tahoe International Airport said the foreign trade zone “is a very important tool for attracting companies. It is actively playing a role in our efforts to attract Chinese cargo development to our airport and the region.”

He said the flexibility of Reno’s zone is especially helpful.

“The FTZ in our market can float from spot to spot and is tied to the company or applicant, not a location,” Kulpin said.

“So a company can import raw material and process it in different locations within our zone — welding in South Meadows, final assembly in Sparks and distribution from Stead. This allows a company to focus on cost-effective operations and not on having to be in a certain location, and they can vertically integrate (where different steps in the supply chain fall under one owner).”

He said industries that benefit from foreign trade zones and are targeted by the airport include companies that import and export merchandise, warehouse operators, manufacturers and third-party logistics providers (firms that ship products for other firms).

When to join, what it costs

Romine said his ballpark advice for whether it’s worth applying to be part of the foreign trade zone is if you think you can see $100,000 a year in savings. (The Economic Development Authority of Western Nevada or Romine’s firm can help you do the estimate.)

Also, users need to be importers from overseas. It doesn’t help if you’re getting products or materials from within the United States and then exporting it.

“And then there are internal costs with how you manage inventory, how you operate,” Romine said.

“Every company is different. Some may require inventory management changes. There must be someone on staff who understands the program. There are some security things you have to manage in terms of who has access to the cargo. So internal costs will vary by company.”

Getting the word out

Yvonne Stedham said the foreign trade zone was a definite factor in the decision of Kimmie Candy Co. to locate in Reno.

Stedham is a professor in the College of Business at the University of Nevada, Reno. She teaches international management, among other subjects.

When asked why so many businesses don’t seem to know about the benefits of foreign trade zones, she mentioned a survey that was done by the Nevada World Trade Council, for which she was a past president. (It also goes by the name NEWTRAC.)

The group contacted internationally oriented businesses to learn about the challenges they face.

“It turns out they’re mostly small businesses — 97 percent of U.S. exporters are small businesses but they represent only 30 percent of export value,” Stedham said.

“What we then found is that the small businesses aren’t very well prepared to deal with international challenges but they also aren’t aware that they don’t know how to do it. They’re muddling through instead of looking for resources to help them so that explains why they’re not aware of trade zones.

“That was very interesting to us. They are totally run by the owner, who is often overwhelmed, and the last thing they’d do is go to a Nevada World Trade Council meeting where we’d explain the advantages of the available resources.”

Romine estimates that 10 to 15 businesses in Northern Nevada are using the foreign trade zone but that two to three times that many could save money by applying.

And he said it’s a key selling point for the region.

“People locate in a market for a lot of different reasons and this is one of those reasons,” Romine said.

“It’s an important one. It tells companies, ‘We’re not deficient here, you’re not going to not come here because of our limited foreign trade zone.’ And because of our (alternative site framework) coverage, we’re probably more flexible than many of the foreign trade zones around the country.

Here are some resources for Northern Nevada businesses looking for help with imports and exports:

* The Nevada Investment & Trade Revenue Opportunities initiative, or NITRO, is the state’s effort to help small businesses that want to export. It is funded through grant money from the Small Business Administration. Visit nitro.nv.gov.

* The Nevada World Trade Council — at newtrac.net — is a nonprofit business group in Reno that aims to support Nevada’s international business opportunities and to offer access to resources and educational seminars.

* Legacy Supply Chain Services administers Reno’s free trade zone and can help with those wanting to get involved. Learn more at legacyscs.com or by calling 800-361-5028, ext. 6.

* Nevada Industry Excellence will have an ExporTech event over eight weeks starting in February where international business students will intern with local companies that want to learn about exporting. Visit nevadaie.com.

* Export Assist is an export finance manager with headquarters in San Francisco and offices in Nevada, St. Thomas, Bermuda and Barbados. Visit exportassist.com.